Yahoo: Secret hire, very public problems

YAHOO

Brad Stone, Brian Womack and Emily Chang

Updated
9:34 am PDT, Friday, July 20, 2012

The Yahoo board of directors was leaving nothing to chance. The Internet company is known throughout Silicon Valley as a leaky ship whose internal deliberations often turn up on blogs or in other media outlets. So when the company's four-member chief executive search team met Google veteran Marissa Mayer for the first time last month, their precautions evoked a John le Carré novel.

No one inside Yahoo was told, and the interview was conducted 10 miles away from headquarters in the Palo Alto offices of law firm Skadden, Arps, Slate, Meagher & Flom. When Mayer met with the entire Yahoo board last week, the company's directors were bused from Yahoo's offices to another law firm on Page Mill Road in Palo Alto.

The idea was to evade potential tails, and anyone who had figured out the first interviews had taken place at Skadden, according to a person briefed on the process who wished to remain anonymous. In a morning-long conversation, Mayer wowed the board, including hedge fund manager Daniel Loeb, whose agitations led to the ouster of previous CEO Scott Thompson over exaggerations on his resume.

Rare good news

Then, on Monday, Yahoo finally did something it hadn't done in a very long time - it pleasantly surprised the world.

Mayer, 37, now becomes a celebrity CEO - the kind of leader whose every move draws scrutiny. She's vivacious and hyper-intelligent, with an unusually geeky laugh and a reputation for obsessive focus on the details of product design. She was one of the first employees at Google, the company that first rode to prominence on Yahoo's coattails as its search provider and then quickly surpassed it.

Over the years Mayer ran Google's search group, worked on products such as Gmail, and most recently led its maps and local division. Though a spot on Google's top executive team always eluded her, she'd always been one of the company's best spokespersons.

Now she brings that media fluency to the demanding task of finding the silver lining in the tribulations of a longtime rival.

"I always had an incredible amount of respect for Yahoo," she says. "I think it's a terrific brand with a fantastic worldwide following and a huge amount of potential in terms of the range of products it has for users and advertisers."

No easy task ahead

Mayer will have her hands full. Yahoo is a company with deep problems - declining quarterly revenue and market share, a downtrodden workforce, and a dearth of talent within its depleted engineering corps. As former Yahoo manager Michael Smith wrote in a blog post a few months ago, "Yahoo could easily cut 20 to 25 percent of its staff without actually cutting much of its capabilities."

Mayer is the seventh CEO in five years. That turnover has contributed to a metastasizing identity crisis and an oft-repeated question: Just what is Yahoo supposed to be, anyway?

Yahoo's mission, according to the boilerplate on its press releases, is to create "deeply personal digital experiences." But that territory has been usurped by social media upstarts like Facebook and Twitter. Yahoo's share of overall online ad revenue in the United States, which peaked at 15.7 percent in 2009, is dropping like an anvil and hit 9.5 percent last year, according to research firm EMarketer.

"I used to think success for a Yahoo CEO would mean a successful sale of assets and a private equity sale for the rest of the business," says Jordan Rohan, an analyst at Stifel Nicolaus. He characterizes Mayer's move from wealthy, tech-savvy Google to browbeaten Yahoo as "a little bit like the mayor of Palo Alto being asked to run the city of Detroit."

That's the bad news. Here's the good: Yahoo controls some of the most visited properties on the Internet, with more than 700 million monthly users. It also has a healthy balance sheet, with $2.4 billion in cash. It owns stakes in overseas companies like Yahoo! Japan and Alibaba.com, a Chinese Web company, that are worth up to $10 billion.

Mobile possibilities

One area of opportunity is mobile, which none of the major tech powers has conquered the way Google dominates conventional Internet search ads. Consumers may have flocked to smart phones and tablets, but advertisers haven't been won over - yet. That gives Mayer a plausible opening to leverage Yahoo's traditional strengths (e.g., Yahoo! Sports) and revive some of its once-hot properties (its photo-sharing site Flickr comes to mind).

Yahoo has developed a reputation as a dreary place to work and an inept purchaser of startups. If Mayer can straighten things out and recommit Yahoo to product development and innovation, the company could re-establish itself as a credible player in tech. It could even become an effective startup buyer again. That's one reason venture capitalists like Marc Andreessen are excited about Yahoo's surprise hire.

"The damage is deep, and the repair job is going to take a lot of work," the Netscape co-founder says, but "she's a fantastic choice and I'm happy for them that they got her. If it's me, I'm setting expectations so low you can't even see them."

As a top executive at Google for the past 13 years, Marissa Mayer played an instrumental role in developing many of the services that have tormented Yahoo as its appeal waned among Web surfers, advertisers and investors. (July 17)

Media: San Francisco Chronicle

The Yahoo headqarters in Sunnyvale. Yahoo went through extreme measures to keep secrect it was interviewing Google executive Marissa Mayer as the company's new CEO.

The Yahoo headqarters in Sunnyvale. Yahoo went through extreme measures to keep secrect it was interviewing Google executive Marissa Mayer as the company's new CEO.

Photo: Justin Sullivan, Getty Images

Photo: Justin Sullivan, Getty Images

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The Yahoo headqarters in Sunnyvale. Yahoo went through extreme measures to keep secrect it was interviewing Google executive Marissa Mayer as the company's new CEO.

The Yahoo headqarters in Sunnyvale. Yahoo went through extreme measures to keep secrect it was interviewing Google executive Marissa Mayer as the company's new CEO.